The recent pullback in the Canadian equity market is providing investors with an opportunity to pick up some of the country’s top stocks at reasonable prices.
Let’s take a look at two TSX Index leaders to see if they deserve to be on your buy list right now.
Nutrien (TSX: NTR)(NYSE: NTR)
Nutrien is the world’s largest supplier of crop nutrients, providing countries with wholesale shipments of potash, nitrogen, and phosphate.
The fertilizer sector went through a rough few years with prices falling sharply, but that appears to be over, as potash contracts negotiated with India and China last year came in at higher prices and spot pricing in key markets has improved. The market still has a way to go before it reaches previous highs, but Nutrien is already generating strong results. The company earned US$2.69 per share last year and is targeting earnings of US$2.80-3.20 for 2019.
Nutrien is expanding its retail division through strategic acquisitions, and that trend is expected to continue as the sector consolidates. Nutrien already provides more than a half-million farmers around the world with seed and crop protection products.
The board raised the dividend by 7.5% for 2019, and more gains should be on the way in the coming years. The current payout provides a yield of 3.4%.
The stock trades at $67 per share compared to the 12-month high of $76. If crop nutrient prices continue to recover, this company has the potential to generate significant free cash flow, and it wouldn’t be a surprise to see the stock top $100 in the next couple of years.
Suncor Energy (TSX: SU)(NYSE: SU)
Suncor is a giant in the Canadian energy sector with a market capitalization of $67 billion. Size matters in this business and Suncor’s strong balance sheet gives it an advantage when the oil market hits a rough patch. The company took advantage of the last major downturn to buy strategic assets, including Canadian Oil Sands. That deal gave Suncor a majority stake in Syncrude. The company also added to its position in other core assets, including Fort Hills.
Suncor’s other business lines include refineries and a portfolio of retail locations. These downstream assets provide a nice revenue hedge when margins dip on the production side. Overall, the company can generate decent numbers even when oil prices are falling.
The recent rebound in the sector might just be getting started, and Suncor stands to benefit when funds start to flow back into energy stocks. Management is buying back shares while they are still cheap, and the 17% dividend increase for 2019 suggests the company has a positive outlook on cash flow.
Investors who buy the stock today can pick up a yield of 3.9%. The current stock price of $43 appears cheap, as Suncor traded for $55 last summer and could easily take a run at that level if WTI oil moves back above $70 this year.
The bottom line
Nutrien and Suncor are leaders in their respective industries and should be solid buy-and-hold picks for a retirement portfolio. If you have some cash sitting on the sidelines, these stocks appear attractively priced right now.
